Aggressive market operations should curb cedi’s woes - Economist

The Bank of Ghana (BoG) has been urged to conduct aggressive open market operations to mop up Ghana cedi liquidity more frequently in order to reduce the demand pressures on the foreign exchange market.

According to economist, Courage Martey, a boost to foreign exchange supply is required to complement any demand-side management policy in order to slow down the pace of depreciation.

The Ghana cedi lost 1.0 percent year-on-year depreciation to the US dollar on Friday February 3, 2019, according to Ecobank Research. It is presently going for about GHc5.05 to the American currency.

Ecobank Research has attributed the recent appreciation in the US dollar as a major reason.

“The Ghana cedi floating regime amid high current account deficit and low FX reserves make the currency vulnerable to external shocks as a strong USD.

Therefore, we think pressures are likely to remain in the medium-term, on the back of emerging markets and frontier markets risk aversion.”

It, therefore, expects the Central Bank to maintain policy rate at current level to ease pressures on the local currency.

Mr. Martey, who is also a Senior Economic Advisor at Databank, said the rate of depreciation will slowdown but it is difficult to see a slowdown in the first quarter.

“I do not see significant boost in FX supply until after quarter one 2019 when government is likely to issue up to US$2 billion Eurobond per the 2019 budget later in the year.”

“I think this anticipated Eurobond inflow will provide significant support to FX supply and slow down the pace of depreciation”, he added.

The Ghana cedi ended the year 2018 with an annualized depreciation of about 8.8 percent to the US dollar.

This is against 4.45 percent depreciation in 2017. In 2016, the cedi lost about 9.2 percent in value to the American ‘green back’.

According to Ecobank Research, South African rand and Swaziland lilangeni are the best performing African currencies for the first month of 2019. They have both appreciated 8.0 percent against the US dollar.

The naira has also appreciated by 0.5 against the American currency so far this year whilst the CFA remains unchanged.